Implications of buying house undervalue from family

ccmccm

I currently live with my girlfriend and her family (mum, brother, sister + bf) in her mum's large 5 bedroom detached house.

She's currently on an interest-only mortgage and has basically no equity in the house. It was a new build bought on a £300k mortgage 10 years ago. Apparently it is valued at roughly £600k now.

We all contribute towards the house but she is in debt and struggling to pay every month and has proposed a plan.

She wants myself, my girlfriends sister and girlfriends brother (3 highest salaries) to buy the house from her for £400k. Together, our salaries are probably around 100-110k. I could come up with the deposit from an upcoming inheritance (40-50k) and my savings since I finished Uni (about 15k).

We would buy the house and live in it for the next couple of years, renting it back to her for lets say £500 a month.

In a couple years time, we would then sell up at £600k, having profited around 200k. The fees, stamp duty etc of the initial purchase would be swallowed out of this 200k. We would then get the money we put in as deposit back and the money we paid on the mortgage (2000-2500 a month I'm guessing) back so in effect we are break even. With the left over profit, let's say 150k, we buy 2 bedroom house up in a cheap area near Cambridge let's say and she rents it from us.

What are the implications of this? Is this all legal and what tax do I have to keep an eye out. Does this count as transfer of estate? If my girlfriends mother dies in the next 7 years, are we liable to pay inheritance tax on the difference between market value (600) and what we bought it for (400). What about capital gains tax since we are renting it back to her?
Any pitfalls or general things I should be aware of?

Any help much appreciated!

Thrugelmir

Why don't you all become party to the mortgage. Depending on the contribution own a given share.

nearlyrich

Who is doing the valuing?

ccmccm

Thrugelmir wrote: »

My don't you all become party to the mortgage. Depending on the contribution own a given share.

Well that's the plan. The 3 of us with highest salaries will be on the mortgage but we're only planning on having it for a year or something so most of it will be interest anyway.

nearlyrich wrote: »

Who is doing the valuing?

Unsure, I think it's been valued a few years ago at 600k which is what they're going on but I assume it would be revalued. The family are certain it's worth a lot though and will only go up.

londonTiger

Dude, this is more commitment than an actual marriage.

Be careful about that, I have no doubt that your relationship is going good, because you;re living with her family. But things can get ugly, people break up, and almost always after a breakup communication with the ex's family are ususally sour.

I would not get into a financial commitment with a gf's family. Not even if you're married.

Even if your relationship is sound, if !!!! hits the fan and you guys aren't financially capable of dealing with the mortgage, it will turn your relationship sour.

shop-to-drop

.... don't be fooled into thinking it will only go up. You need to consider that the value of the property may drop.

ccmccm

I realise it's a big commitment which is why I'm being very careful legally just in case things turn bad. We've been together a few years but I still want to make sure just in case - both for their sake and mine.

I've prepared them for it dropping in value in which case they've said the mum will shoulder that loss through the profit - just leaving slightly less for buying the small house. It's been painted as very risk-free because of this - any costs and losses are taken out of the 100-200k cushion.

Mojisola

ccmccm wrote: »

We all contribute towards the house but she is in debt and struggling to pay every month and has proposed a plan.

Is her debt because the rest of you aren't sharing the costs equally or does she have other debts?

ccmccm

Mojisola wrote: »

Is her debt because the rest of you aren't sharing the costs equally or does she have other debts?

Without going into it too much, the kids and boyfriends pay some a month (few hundred each) but it isn't just split in 6. The mum doesn't work. She has other debts from the past which mean she would probably have to declare bankruptcy after selling the house to us - which is kind of the aim, getting her out of debt so she can have a nice (smaller and out of london area) house, car, spending money etc.

It's not feasible to split it evenly - along with my commuting costs to London it would be pointless since I only share a small room with my girlfriend. It would be cheaper going back to living in the new build 2 bed apartment I shared with a friend before I moved in here. If we split the mortgage (interest only) + her debt payments evenly, it would be cheaper for us to just rent a place of our own and we'd have a lot more room.

Thrugelmir

ccmccm wrote: »

She has other debts from the past which mean she would probably have to declare bankruptcy after selling the house to us -

She has the assets. Sale at undervalue.

Don't become involved.

heathcote123

Thrugelmir wrote: »

She has the assets. Sale at undervalue.

Don't become involved.

What he said.

You'd be mad to get involved with this. She needs to sell up, buy a smaller pad and get a job. It really is not your problem, so dont make it so.